Unit 5 Assignment - Case Study

5 Consumer Stakeholders and the Environment 327

Case 15

Wal- Mart: Challenges with Gender Discrimination

The Civil Rights Act of 1964 forbids gender- based discrimination in the employ- ment arena. Section 703 of this act specifi es that:

It shall be an unlawful employment practice for an employer to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.

It shall be an unlawful employment practice for an employer to limit, segre- gate, or classify his employees in any way which would deprive or tend to de- prive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.

In Dukes v. Wal- Mart Stores, Inc., Betty Dukes, the lead plaintiff along with fi ve other plaintiffs and the class that they represent, charged that “Wal- Mart discriminates against its female employees by advancing male employees more quickly than female employees, by denying female employees equal job assign- ments, promotions, training and compensation, and by retaliating against those who oppose its unlawful practices.” In addition, the plaintiffs sought to end Wal- Mart’s discriminatory practices, to receive relief for the class, and to secure punitive damages. Dukes v. Wal- Mart Stores, Inc. also alleged that Wal- Mart’s underlying culture and policies contributed to the discrimination that the plain- tiffs experienced.

“The theories pursued in the Dukes litigation involve what are known as ‘glass ceiling/sticky fl oor’ allegations of employment discrimination that female employees are relegated to low- paying positions and are unable to be promoted into better paying and higher- level managerial jobs.” Note that “These arguments manifest an aggressive approach by the plaintiffs’ bar to establish the class- worthiness of claims stretching over multiple facilities with assertions that pay and promotion claims are readily susceptible to class- action treatment based on expert testimony that such claims are truly common and typical.” According to data supplied by statistical con sul tant Richard Drogin on behalf of the plain- tiffs, Wal- Mart had an established pattern of discrimination against women. In his statistical report, Drogin concluded that “Women employees at Wal- Mart are concentrated in the lower paying jobs, are paid less than men in the same job, and are less likely to advance to management positions than men. These gender patterns persist even though women have more se niority, have lower turn- over rates, and have higher per for mance ratings in most jobs. The shortfall in female earnings, pay rates, and promotion rates has a high degree of statistical signifi cance.”

Wal- Mart’s expert witness, Joan Haworth, an economist who had provided tes- timony in more than fi ve dozen employment cases, reached different conclusions

C o p y r i g h t 2 0 1 4 . B e r r e t t - K o e h l e r P u b l i s h e r s .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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328 Business Ethics

regarding pay disparity at the giant retailer. She claimed that “Drogin’s analyses did not adequately take into account crucial factors, like the number of hours worked and whether they included night- shift work, which pays more. But her overarching criticism was that his approach amounted to pretending that a single person was making all promotion and pay decisions throughout Wal- Mart na- tionwide, when, according to depositions, most pay determinations were made at the store manager level or, in the case of certain specialty department employ- ees, at the district manager level.” She concluded that “more than 90% of class members worked at stores where women were statistically no worse off than men. Wal- Mart’s argument, then, was that if a class action must be fi led, it should be brought against the specifi c stores with disparities favoring men.”

Class Action or Not? Perhaps the most contentious issue in the Dukes v. Wal- Mart Stores, Inc. case has been whether or not a class action is warranted. A class-action fi ling is af- fected by Rule 23 of the Federal Rules of Civil Procedure, which prescribes the conditions under which class-action suits may be brought to Federal courts. Rule 23(a) outlines the prerequisites for a class action. They are: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representa- tive parties will fairly and adequately protect the interests of the class.”

Wal- Mart challenged the legal validity of a class action in the case, arguing, in a September 24, 2003 hearing before U.S. District Judge Martin Jenkins, that the lawsuit should be broken into separate class actions against each of the 3,473 stores across the United States because decisions about pay and promo- tions are largely made at the store level. On June 22, 2004, Judge Jenkins ruled that six current and former Wal- Mart employees from California may represent all female employees of Wal- Mart who worked at its U.S. stores anytime since December 26, 1998. In his fi ndings, Judge Jenkins said that the evidence pre- sented by the plaintiffs “raises an inference that Wal- Mart engages in discrimi- natory practices in compensation and promotion that affect all plaintiffs in a common manner.”

Judge Jenkins’ ruling is potentially momentous because “Class- action litiga- tion is unlike a single plaintiff lawsuit in that the stakes are enormous and the exposure to a corporation increases geometrically if the plaintiffs are success- ful. The holy grail of class- action litigation for both sides is the class certifi cation decision. . . . Practically speaking, victory or defeat in the class certifi cation pro- cess casts the die for a corporation’s exit strategy from class-action litigation.”

Enter the United States Court of Appeals for the Ninth Circuit On appeal to the Ninth Circuit, located in San Francisco, California, Wal- Mart claimed that the proposed class failed to meet the commonality prerequisite of Rule 23(a)(2), since local store managers had autonomy in making salary and promotion decisions. However, “the plaintiffs said this hands- off approach itself

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5 Consumer Stakeholders and the Environment 329

constituted the common policy that impacted class members— arguing it fostered discrimination by allowing individual managers to make excessively subjective decisions based on gender ste reo types.” In support of this position, plaintiffs presented evidence from an expert witness, sociologist William Bielby, who based his testimony on so- called “social framework analysis.” Bielby testifi ed that “a strong and widely shared or gan i za tion al culture promotes uniformity of practices throughout an or ga ni za tion,” and that such a culture “could be inferred from such factors as Wal- Mart’s emphasis on the company’s found er and its his- tory, a mission statement defi ned by core values, [and] frequent communication about the culture to employees.” Allan King, an interested observer who has a doctorate in labor economics and a law degree, says, “There is no such thing as social framework analysis. . . . But it will be a challenge for defendants to per- suade the court that what they [i.e., plaintiffs’ expert witnesses] regard as a methodology is not.” Ultimately, the Ninth Circuit used Bielby’s testimony to support its fi nding that commonality had been demonstrated for the class. The court wrote, “Evidence of Wal- Mart’s subjective decision- making policy raises an inference of discrimination and provides further evidence of a com- mon practice.”

On February 6, 2007, the United States Court of Appeals for the Ninth Cir- cuit affi rmed, on a 2– 1 vote, U.S. District Court Judge Martin Jenkins’ decision to certify a class that had grown to approximately 2 million women in the lawsuit against Wal- Mart. The class includes the more than 2 million women who have worked at any of the company’s more than 4,000 retail stores nationwide since December 26, 1998. Writing for the majority, Judge Harry Pregerson “deferred to the district court’s ‘broad discretion’ to certify and did not amend any of its fi ndings.” Most of the Ninth Circuit Court’s opinion addressed the commonality prerequisite of Rule 23(a)(2). The Ninth Circuit’s opinion said that “Plaintiffs demonstrated that Wal- Mart had a corporate policy of discrimination (because the policy was corporate- wide, it would be in effect at every Wal- Mart store and thus would be common to every female Wal- Mart employee).” However, in a strongly worded dissent, Judge Andrew J. Kleinfeld said the appellate deci- sion “poses a considerable risk of enriching undeserving class members and counsel, but depriving thousands of women actually injured by sex discrimina- tion their just due.”

In response to the Ninth Circuit’s ruling, Theodore J. Boutrous Jr., an attorney representing Wal- Mart, said, “We recognize this is another step in what is going to be a long pro cess. It’s a technical legal ruling that only certifi es the lawsuit as a class action, but does not address its merits.” Boutrous also expressed the be- lief that Wal- Mart has a strong argument for obtaining further review from either the full Ninth Circuit Court or the United States Supreme Court, “because the majority rule confl icts with many Supreme Court decisions as well as many recent decisions from other appellate courts around the country that ‘have re- jected precisely the direction taken by the [Ninth Circuit] court.’ ” However, Brad Seligman, representing the Wal- Mart plaintiffs, said the appellate court was now the second court to rule on the class certifi cation issue and “it’s clear Wal- Mart

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330 Business Ethics

is going to have to face the music and justify its practices, and we are very opti- mistic this case will ultimately be returned to trial.” In fact, Wal- Mart asked the full Court of Appeals for the Ninth Circuit to reconsider the 2– 1 approval of the class.

In May 2011, the Supreme Court started hearing the Dukes v. Wal- Mart Stores, Inc. case. In June, “the Court ruled that the case could not proceed be- cause the 1.5 million current and former Wal- Mart employees suing the company for alleged sex discrimination could not legally constitute a ‘class.’ ” Therefore, Wal- Mart successfully defended its position, and from then on the criteria for get- ting a class-action suit approved has been much stricter.

Potential Implications of Dukes v. Wal- Mart Stores, Inc. Observers say the 2– 1 decision by the Ninth Circuit Court of Appeals does not break any new legal ground even though it could end up costing Wal- Mart bil- lions of dollars. Rather, the primary signifi cance of the ruling is the unpre ce dented size of the class action. Anthony J. Oncidi, an attorney with Proskauer Rose LLP in Los Angeles, said Judge Kleinfeld’s strong dissent in the 2–1 ruling suggests that other Ninth Circuit judges may also believe that the 2– 1 majority ruling is not really appropriate, which could lead to a reexamination by the full appellate court. Ultimately, the Supreme Court “may respond to business community de- mands that it ‘tighten up class certifi cation’ in the same way it tightened rules on punitive damages.”

Although Dukes v. Wal- Mart, Inc. may not break any new legal ground, em- ployers nonetheless may want to rethink their practices. As Susie Gibbons, an attorney with Poyner & Spruill L.L.P. in Raleigh, North Carolina, says, “The huge potential liability of this case represents an expansion of the class action vehicle as a weapon of attack against employers, and it should cause all companies of any size to review their own hiring and promotional practices. . . . If I were a risk manager at a company, I would want to analyze this case to look at what the vulnerabilities were that ended up causing this problem for Wal- Mart.” Writing in Fortune magazine, Roger Parloff and Susan Kaufman point out that although racial or gender quotas and preferences are illegal, “they will obviously be tempting to employers who want to avoid being hit with class- action employment discrimi- nation lawsuits. For there is only one sure- fi re way to inoculate oneself against such suits, and that is to have workforce numbers that look good even when ana- lyzed by a plaintiffs’ expert. And the cheapest and fastest way to get those is to use quotas or preferences.”

Mary Swanton, writing in InsideCounsel, says that “employers can use the fi ndings in Dukes to assess their vulnerabilities. For example, companies could test how their corporate culture would stand up to a sociologist’s analysis. They also could look at how their decision- making pro cesses can be made more objective and whether they have pro cesses in place to ensure their managers implement non- discrimination policies.” Meg Campbell, with Ogletree, Deakins, Nash, Smoak & Stewart, says, “If they [employers] take the lesson of this court’s analysis and look at what they are doing and how they can do it better, they’ll put themselves in the best defensive posture in the event of litigation.”

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5 Consumer Stakeholders and the Environment 331

Parloff and Kaufman also remark, “The Wal- Mart rulings could end up repre- senting a high- water mark. . . . The underlying legal battles seem destined for the [United States] Supreme Court. The urgent question is whether the current [Supreme] Court with its staunchly conservative fi ve- justice majority, sharp aver- sion to race- conscious remedies, and weak respect for prior pre ce dent will al- low this situation to persist. The Wal- Mart suit may be the case that gives us the answer.”

Questions for Discussion 1. Based on the stated human resources philosophy of Wal- Mart, would it be

likely that the company would discriminate based on gender differences? Explain.

2. Put yourself in the role of the plaintiffs. What ethical arguments would you offer in support of their allegations?

3. Put yourself in the role of Wal- Mart. What ethical arguments would you offer to counter the plaintiffs’ allegations?

4. What do you think the plaintiffs meant by their allegation that Wal- Mart’s culture is a signifi cant contributor to gender discrimination?

5. Is a class action against Wal- Mart justifi ed? Explain your position. 6. Explain how the outcome of Dukes v. Wal- Mart Stores, Inc. is important for

major stakeholders in the case, including the American society.

Sources Wal- Mart’s corporate web site asserts that: “Wal- Mart will not tolerate discrimination

in employment on the basis of race, color, age, sex, sexual orientation, religion, disability, ethnicity, national origin, veteran status, marital status or any other legally- protected status.” Against this backdrop of professed commitment to equal opportunity, Wal- Mart faces an ongoing battle in the gender discrimination class action suit Dukes v. Wal- Mart Stores, Inc. fi led on June 19, 2001 in United States District Court for the Northern District of California.

This case was developed from material contained in the following sources:

Burns, G. (September 4, 2003). Class action no bargain for Wal- Mart: 1.5 million could be added to bias suit by women. Chicago Tribune. http:// www .againstthewal .com /new _page _4 .html #Class _action _no _bargain _for _Wal -Mart, accessed April 27, 2008.

Civil Rights Act of 1964, Section 3. (1964). http:// memory .loc .gov /ammem /awhhtml /awlaw3 /civil .html, accessed April 27, 2008.

Drogin, R. (2003). Statistical analysis of gender patterns in Wal- Mart workforce. Berkeley, CA: Drogin, Kakigi & Associates, 46. http:// www .walmartclass .com /static data /reports /r2 .pdf, accessed April 27, 2008.

Dukes v. Wal- Mart Stores, Inc. First amended complaint, 2. http:// www .coalitointlc .org /dukeswalmart61901 .pdf, accessed April 27, 2008.

Fanibanda, B. D. (2007). Dukes v. Wal- Mart: The expansion of class certifi cation as a mechanism for reconciling employee confl icts. Berkeley Journal of Employment & Labor Law, 28(2), 591.

Greenwald, J. (February 12, 2007). Biggest- ever bias suit may fuel tort trend. Business Insurance, 41(7), 1.

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332 Business Ethics

Greenwald, J. (February 12, 2007). Companies urged to examine employment practices. Business Insurance, 41(7), 29.

Maatman, G. L., Jr. (September 5, 2005). “Dukes” class action may be hazardous: Employment practices exposure cited as courts assess gender discrimination. National Underwriter Property & Casualty, 35.

Parloff, R., and S. M. Kaufman. (October 15, 2007). The war over unconscious bias. Fortune, 156(8), 100.

Rittgers, Anna. (June 22, 2011). Wal- Mart v. Dukes ruling actually protects women— and all Americans. Christian Science Monitor. http:// www .csmonitor .com /Commentary /Opinion /2011 /0622 /Wal -Mart -v . -Dukes -ruling -actually -protects -women -and -all -Americans, accessed January 7, 2014.

Rule 23. Class actions (a) Prerequisites to a class action. Rule 23 of the Federal Rules of Civil Procedure, 507. http:// www .rand .org /pubs /momgraph _reports /MR969 /MR969 .appa .pdf, accessed April 27, 2008.

Swanton, M. (April 4, 2007). Dukes of hazard: 9th Circuit decision paves way for massive discrimination class actions. InsideCounsel, 24.

Wal- Mart statement of ethics. (Revised January 1, 2005). http:// www .walmartstores .com/medi/resources/r_2032.pdf, 13, accessed April 27, 2008.

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